A few days ago, Treasury Secretary Janet Yellen stated that adhering to the debt ceiling would produce a “constitutional crisis.” Her statement, however, reflects her lack of understanding of both fiscal and constitutional principles.
The debt ceiling is a law that has been duly enacted by Congress. No one, including Yellen, has ever suggested that the debt-ceiling law violates the Constitution.
Therefore, for Yellen to say that complying with a duly enacted constitutional law would provoke a “constitutional crisis,” well, that’s just plain silly.
What she is suggesting is that if the debt ceiling is adhered to, this would cause a default by government in the payment of its debt. She says that such a default would constitute a violation of the 14th Amendment which states, “The validity of the public debt of the United States … shall not be questioned.”
What she clearly does not get is that complying with the debt ceiling does not question the payment of the government’s existing debt. It simply prohibits the government from incurring new debt. In other words, it requires U.S. officials to balance tax revenues with expenditures.
Why a debt ceiling?
The federal government spends more than what it brings in. To cover the difference, it borrows money. It has done this for a very long time. That’s why the federal government’s debt now exceeds $31 trillion. That’s a lot of debt.
The debt ceiling is a formal acknowledgment by both the legislative and executive branches that too much debt is a very bad thing, even a dangerous thing. That’s why the ceiling is there. It says: Once you reach this level of debt, you’ve got to balance tax revenues with expenditures. In other words, no more adding to the overall debt burden. Contrary to Yellen’s suggestion, that’s not an unconstitutional act. That’s an act of fiscal responsibility.
Adhering to the debt ceiling could mean one of two things: raise taxes or slash expenditures. That’s the choice that public officials loathe. Raising taxes makes people angry. Slashing expenditures makes recipients of federal largess angry. “Why can’t we just borrow more money so that we don’t make anyone angry?” public officials cry.
But let’s not forget one important thing: that debt has to be paid off. Who pays it off? You guessed right — American taxpayers. In case anyone is wondering, that $31.7 trillion in debt amounts to $247,766 per taxpayer.
No need for a default
Let’s assume that federal officials decide not to raise taxes and decide instead simply to slash expenditures. There are two types of expenditures: The ones that involve the payment of the federal government’s debt obligations and those that don’t.
Yellen is suggesting that adhering to the debt ceiling would require public officials to default on the payment of those debt instruments. But that is clearly a fallacious position because public officials could instead slash expenditures on the non-debt items, such as the military, the CIA, the NSA, foreign wars and interventions, foreign and domestic military bases, foreign aid (including to Ukraine), Social Security, Medicare, welfare, the drug war, or the war on immigrants. It could also lay off all the so-called non-essential federal workers and abolish all the so-called non-essential departments and agencies. Balancing the budget by slashing expenditures on the non-debt items would mean that tax revenues would be more than sufficient to pay the amounts owing on the national debt.
Thus, if a default on the payment of the debt were to occur, it would be because public officials decided to keep the non-debt expenditures intact, which would leave them with insufficient money to pay the debt. But that would be a choice that they would have decided to make, one that they didn’t have to make. Again, they could choose to fully pay the debt and slash expenditures elsewhere.
The only way to balance the budget
One thing is clear: If the debt ceiling is raised, there will be no slashing of federal expenditures afterward. All the people who are clamoring for yet another increase in the debt ceiling will celebrate and never call for a decrease in federal spending. When the new debt ceiling is reached a few years from now, the cycle will start anew.
How do we know this? Because this is what has happened every time the debt ceiling has been reached in the past. People like Yellen have cried, “The sky will fall if the debt ceiling isn’t raised.” Then, each time it was raised, they uncorked their Champagne bottles and celebrated, knowing that they would be able to do it again when the new ceiling was reached in a few years.
Thus, the only way to prevent any further increase in the federal government’s debt is to enforce the debt ceiling now. It is the only way to force public officials to slash non-debt-related expenditures and continue paying the debt as well.
The road to liberty
Finally, it is worth mentioning that simply balancing the budget gets us on the road to fiscal responsibility but not to liberty. To get on the road to liberty, it is necessary to dismantle, not reduce, the welfare-state, regulatory-state, and national-security state functions of the federal government and restore our nation’s founding heritage of a free-market system and a limited-government republic.